SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this second quarter conference call for Green Energy Group being rebranded from SeaBird Exploration. My name is Stale Rodahl, I'm the Chairman of the company, and I'm here or at different locations then with our CEO, Gunnar Jansen; and Erik von Krogh, our CFO. Forward-looking statements. Agenda today, we're going to give a quick update on our rebranding. There's going to be an operational update as previously in both our segments, marine minerals and seismic. And by the end of the quarter, the second quarter then, the marine minerals business constituted around 82% of the values in the group and the seismic business around 18%. We will have a financial review for the group and a summary in the end. Briefly, just to rehash our mission in Green Energy Group, our mission is to build sustainable businesses. This is our organization. Just a brief recap on that one. So it is the SeaBird Exploration Plc, the holding company that is being rebranded into Green Energy Group. And SeaBird Exploration takes 1 step down in the structure as a subsidiary of Green Energy Group and a sister company of Green Minerals. And as we have talked about before, we see some very large benefits from this for SeaBird Exploration in terms of that -- this straightjacket of being the holding company in the structure is being taken off SeaBird, which will enable it to expand its business and take a much more active role in consolidation in the seismic industry going forward, we believe. Gunnar, please. You want to update on the timeline of the relocation and the rebranding?

Yes, Stale. So the conversion to a European SE and the relocation to Norway is ongoing. We went through the principles and so on in the last quarterly call. Within sort of -- by the year end, the process to convert and to relocate will be completed. And we now look at the target date to do this final relocation decision in an extraordinary AGM in October 2021. So by November or during November 2021 this year, the company will have relocated to Norway.

Okay. Thank you. Highlights for the quarter then. Revenues were $1.6 million. EBITDA of $1.4 million negative on 23 -- or record low of 23% fleet utilization with an equity ratio of 62%. This fleet utilization of 23% marks the cycle trough for this company, and we're going to look in more detail into why that is so a little bit later on. Major events for the quarter has been reorganizing into Green Energy Group. It has been for the seismic segment, SeaBird, to deliver on the growth plan, which we are very pleased to see, winning awards on 4 vessels, that means contracts on all the 3 vessels that we own, and then 1 additional vessel that is on the flexible charter contract. This was the main goal for the seismic business for the year. As you will remember, that is outfitting the Fulmar Explorer against the contract and then being able to bring Geo Barents into active state that was late changed to Veritas Viking. So delivered on both those fronts, which we're very pleased on. Green Minerals granted 3 development support from Forskningsrådet, 3 times that is -- and the total number is $16.5 million. And also, the company signed an agreement involving the Project ULTRA that is important for us, working with the leading academics globally on marine minerals and also participating into research cruises. And then finally, following the end of the quarter, the letter of intent for Fulmar Explorer was signed. We'll begin with Green Minerals. The mission here is to enable the green shift. We are proud to have been part of the Global 50 leader series that has been shown on Bloomberg. And I'm going to show just a quick teaser from that, that explains a lot about the mission of the company. [Presentation]

So on the environmental issues, of course, this is a hot topic when it comes to the marine in roads industry. We have previously shown this slide where on the number of different metrics, you will see that the -- that offshore mining or deep sea mining offers a 70% to 100% reduction on basically all these metrics. So we think it's very clear that this way of mining the resources for the green shift is the better way of doing it. We have added this chart in this presentation just to show the -- to show what's going on and really the largest problem of land-based mining. You see a chart here from more or less the last 200 years, showing ore grade that started up in around 20%, grade of the ore being produced then, being actual copper then in this example. And have in mind, of course, the low-hanging fruit to begin with, the copper grade has been steadily declining over these years, while demand for copper, the usage of copper has been increasing. So a steady increasing amount of copper with a steady decreasing ore grade means that the amount of waste that is being produced by this industry has simply exploded. And if you look at the chart here, if you look at the line with the Xs on it, we see that in particular from the beginning of the '90s, this started to become a big problem for not only the industry, but we will say for the planet. And that is that the ore grades on new resources have fallen to such a low level that you end up mining waste. You're not mining actual ore. We in Green Minerals are targeting resources that have a copper content, a physical copper content or the copper content in physical samples that have been taken of up to 14%. So in that respect, marine minerals are back to the quality of the ore that you saw in land-based mining about 150 years ago, around 18 to 70 or so. We are using 5% in our calculations, but the actual physical samples show up to 14% ore. This is really, really important when it comes to 2 things. One is the economics of the project that -- or the projects, I should say, that we are doing. We will do more than one. And it also says something about the environmental impact then of what we're going to do. And thirdly, I can add, it also gives an indication of the way marine minerals can help contribute to both the profitability of existing land-based mines and also the life of those mines. The reason being that the super ore that we will be mining can be mixed or blended into existing low-quality land-based reserves, and thereby have a big impact on existing mines. I think I mentioned it before, but I can just add that one of the closest harbors to the [indiscernible] would be Narvik, up in the north of Norway. There is a railroad there taking over to Sweden that most of the people know. And not far from that one, then there is a mine owned by Boliden called Aitik. Aitik currently has an ore grade of 0.22%. Most experts on processing would say that when you come down to below 0.2%, the mine is probably not economical anymore. So we think they are very interesting prospects, not only from an environmental standpoint, but from an economic standpoint, not only for this company, but actually for the entire mining industry in our area. So because of this higher ore grades then and also technically we -- marine minerals have less overburden than land-based mining has, the stripping ratio will be far lower for a typical SMS deposit in this case then, than you see for a land-based mine. So in this table, you see a side-by-side comparison between Escondida in Chile and a typical SMS deposit with the grade of copper being 300% higher in the type of resource that we are approaching and the stripping ratio then being only half that level with the resultant sharp cut in both waste and tailings from that. So we think this is a major issue, and we're going to show more when it comes to the environmental impact of marine minerals going forward. When it comes to the market, I just want to highlight this one again. This is a cycle this chart, by the way, is not going to change a lot for a very long time, and the reason is the length of the cycle. So it takes between 8 to 15 years to get the greenfield copper mine up and running. And the 10-year supply gap, as shown by Goldman in the chart to the right, gives an indication of the undersupply that we are heading into at the moment. And the inventories started to be drawn from the second quarter 2021, and we'll continue to do so for the foreseeable future. So very, very strong market fundamentals, and we are seeing many reports now coming out, i.e., amongst others, in May and several others pointing to the dramatic lack of resources to enable the green shift and that if these resources are not found or not mined, the green shift or the Green Energy transition simply will not happen or at least will happen much slower than current plans indicate. So this is of utmost importance for the Green Energy transition. When it comes to our partnership structure, we signed in the second quarter the University of Southampton and National Oceanography Centre, and Professor Bram Murton, which is generally accepted as the lead scientist globally on marine minerals. So we look forward to be working closely with Bram and his team going forward. When it comes to targets, we added cobalt just to show the sensitivity to cobalt really in SMS deposits. So previously, we operated with a $550 million corporate target. This is based on the $9,000 copper price and 5% ore grade. These reserves have a lot of cobalt in them as well. And again, physical samples show around 1% cobalt content. We have added for the purpose of showing their sensitivity then, only 0.25% of this. And as you can see, only 0.25% copper will add around almost 50% to the copper revenues that we have been talking about. So 0.25% cobalt then leaves us with more than $800 million in revenues. With that, I hand it over to Gunnar for the seismic market.

Thank you, Stale. Next slide, please. Could you -- next slide, please, Stale. thank you. So the SeaBird fleets, as it is today, 5 vessels, 3 owned and 2 on flexible charters. The Eagle Explorer, Fulmar and Petrel are the owned vessels. Eagle has a flexible in the sense that it can -- it's both 2D vessel and also a very robust and efficient OBN source vessel built in 2009. The Fulmar as we will -- as I will come back to in a few slides, is currently the ongoing outfitting to a high-capacity OBN source vessel. The Petrel is not [indiscernible] vessel, but is very adaptable to segments outside of seismic. And then the 2 not owned vessels, the Veritas Viking and the Voyager Explorer which are on what we call flexible charters meaning that they are flexible, both in the sense that they are -- we only incur cost of -- SeaBird only incurs costs when the vessels are actually working or have worked. They are also flexible in the sense that they are also capable of doing both 2D and OBN source. Next, please. Utilization in the last quarter was the lowest that we've seen in quite a while. We consider this to be the cycle trough. And I think it's very important to note that during this quarter -- for most of the quarter, we had the Eagle Explorer finish an OBN survey in the Gulf of Mexico and spent most of the quarter mobilizing for a 2D survey in the far east that is not included in the utilization. By the time also, some -- 1/3 of the quarter approximately mobilizing for the contracts in the Baltic. And we also had that as [ Viking ] mobilizing. So long utilization, but a quarter of ramping up activity which also clearly had an impact in building working capital in this quarter with mobilizing for 3 different contracts. Next, please. The operating activity in the quarter, again, relatively low due to the fact that we were mobilizing for other contracts. But basically, the Q2 revenues relates to the OBN source contracts or the sort of the tail end of an OBN source contract in the Gulf of Mexico for the Eagle Explorer and the offshore wind farm support contract that Petrel Explorer resulted in the quarter. And then at the end of the quarter, the Veritas Viking also started to generate revenue on the OBN contract in West Africa. Next, please. During the quarter, as already touched upon, the Eagle Explorer finished the OBN source contract in the Gulf of Mexico in late April and spent the rest of the quarter transiting and mobilizing equipment for a 2D survey in the Asia Pacific region. That survey is expected to take us or to go after -- through the third quarter and probably some time into the fourth quarter. The Petrel was reactivated in April, early May and started a 4-month wind farm support contract in the Baltic Sea, which was a first for SeaBird to operate in renewables. And I think even operating outside of the seismic segment, again, is the testament to the adaptability of both the vessels and the operational side of the organization. That contract has been going steady with 0 downtime and is expected to be completed towards the end of the third quarter and maybe into early -- very early fourth quarter. The Fulmar spent the quarter -- the sort of the delayed project quarter preparing for reactivation. We had -- we received a -- after quarter end, we received an LOI for an OBN source contract for the vessel. The seismic outfitting has started and the vessel is currently at the shipyard being equipped as a high capacity OBN source vessel, large impressive capacity industry that's capable of delivering efficient OBN source production and will be operational in -- towards the end of the third quarter starting the contract then. Veritas Viking mobilized in May and transited in June for an OBN survey in West Africa. The contract started in the second half or towards the end of June and is expected to go on until early fourth quarter this year. Next, please. In general, I think what we said at the last quarterly presentation, was that the tendering activity was up and the tendering activity at that time at the end of May in the second quarter was looking very promising. As you can see from this slide through the graph, the time on activity in the quarter came in at -- as the highest since the impact of COVID-19 started last year. And we also see a same trend this quarter where we are ahead of sort of where we were at the same time or same -- or comparable times during the previous quarters. So again, we expect to see a steady increase in tendering activity going forward in this quarter. As you also can see, the bulk of the tendering is we believe that we are pursuing are OBN source related which also affects the importance of ultra bottom seismic and that this segment is primarily driven by the oil and gas companies focus on increased recovery from producing fields as well as near-field exploration as opposed to what you see in the 3D streamer exploration markets. That is where activity is slower than the OBN segments. The source vessel market remains competitive, but the global fleet is still being reduced, vessels are being decommissioned. In general, the fundamentals for the overlying drivers are also improving. Oil prices stabilizing at a higher level, and the impact with sort of the COVID-19 issues, we are returning -- we continue to return to normality. The industry has been able to adjust to the operational challenges. And we do not see -- or haven't seen in quite a while surveys being canceled or delayed due to COVID-19. Over to you, Erik.

Thank you, Gunnar. Yes, we'll start looking at the key figures for the quarter. As you can see, revenues for the quarter was $1.6 million, and that reflects [ globe ] fleet utilization of 23%. As you can see, the revenues in the second quarter of this year are significantly lower than last year. That is partly because utilization was somewhat higher, but also because the majority of the revenue in the second quarter 2020 relates to an outsourced 3D contract. EBITDA for the quarter was negative $1.4 million, and we had a profit of $1.3 million in the quarter. And this is a result of a financial gain related to the distribution of shares in Green Minerals to the shareholders of SeaBird. Next slide, please. Yes, I think we can probably skip this slide and go to the next one. SG&A for the quarter was $0.9 million, in line with the previous quarter, but still somewhat higher than where we aim to be. In order to be able to compare the figures with previous quarters, we have excluded the SG&A for Green Minerals in this figure. Next, please. CapEx for the quarter was only $0.1 million. This figure will, of course, increase in the third quarter when the outfitting of Fulmar has started. And as I stated earlier, this is covered by an existing credit facility. Next, please. And finally, the capital structure. We have a total interest-bearing debt of $9.8 million, and that includes a [ bunkhouse ] facility of $700,000. And with $6.2 million sub-cash, that gives us a net interest-bearing debt of $3.5 million. And the company's equity at the end of the quarter was $35 million, and that gives us an equity ratio of 62%.

All right. Thanks, Erik. So summary of the quarter then. We have been rebranding and reorganizing into Green Energy Group. And with this report, we start reporting as Green Energy Group as well. The AGM is taking place a little bit later today, where the vote on the rebranding is coming through. Green Minerals signed an agreement involving the Project ULTRA in -- during the quarter. Green Minerals was granted 3 times development supports from Forskningsrådet for the 3 different projects now. SeaBird delivers on the stated 2021 growth plan, and has been awarded contracts for 4 vessels, including all 3 owned vessels. And as Gunnar went through the second quarter that we've just been through marks the cycle trough and the outlook is improving. Oil prices and tendering activity is turning up, and we are pleased to see the amount of fixtures that we've done. We're very pleased to see the entire fleet now being engaged, and we think that we have been early and on the right contracts in this upturn. The next leg of the upturn remains to be seen, but we, of course, are going to work hard for a higher profitability on future contracts. The profitability, I think, is well known. It's decent in the current market. But we think there is room for considerable improvement there. And finally, the company is changing focus from restructuring to profitability and growth as we have talked about from the fourth quarter conference call. Investment thesis for Green Energy Group then. The company has a leading position in marine minerals on Norwegian Continental Shelf. This is a new multibillion-dollar industry in the making. For those who haven't read into it, I recommend doing so, maybe starting with the IEA report on minerals that came out in May. A minerals company aspiring to help unlock the most serious bottleneck threatening the investment of the Green Energy transition. The company through SBX is the strongest player in the only niche in the seismic industry, benefiting from the change in spending from greenfield exploration to nearfield. And on that note, we are seeing that now, as you will see from the tendering activity and the contracts that we are signing, this is now happening. SBX is an agile seismic company. Let me rephrase SBX has become an agile seismic company with an industry-leading and flexible cost base and a proven ability to cut costs early in downturns and ramp early when markets improve. The second quarter again marks the cycle trough. The outlook is improving. Green Energy Group will capitalize on an entrepreneurial culture and spirit in combination with our marine minerals and energy market know-how, and we are backed by 6,500 shareholders in doing so. And finally, the company has a return-focused business model with emphasis on capital efficiency and a lean organization. This company, importantly, is managed by shareholders for the benefit of all shareholders. And with that, I think that concludes our presentation and we go to the Q&A. Are there any questions? Erik, do you want to...

Yes, we have some questions. The first question, is it likely that SeaBird will be spun off from Green Energy Group?

Yes. So the Green Energy Group has no intention to -- or we don't see as necessary to own 100% of the companies that we are involved in. So as long as we are a large owner with an impact with the desired impact, we are happy to own at a lower stake. And I think I can say that the group will typically own these companies with less than 100% ownership. So the answer to that is, yes. The SeaBird name may reemerge actually on -- as a separately listed company.

Okay. The next question is, will the ticker code change following the rebranding?

Yes, the ticker code will change. SBX is no longer representative of what the company is doing. So with the name change, the ticker code will change to GEG and the change will happen on Monday, actually. So trading at SBX today. As of Monday, the stock will be trading as GEG on the Oslo Stock Exchange. And on that note, I can also say that we have launched a new website. It's g-eg.no, www.g-eg.no, you will see the name there in the press release, and that website is live as of this morning.

The next question is, do you expect the working capital to continue to build?

Gunnar, do you want to...

I can answer that. What we saw in the previous quarter was, of course, going from a fairly or a low activity level and getting awards and starting organization for several projects at the same time. So basically, activity was ramping up. As activity ramps up, some of the working capital buildup. The way the industry works is that cost comes first and then the revenue comes after. As we go forward and the vessel starts earning revenue on these contracts and other contracts to follow in an improved market, the working capital position is really going to be -- I mean, cash neutral or at least positive going -- or generating positive cash flow going forward. So this quarter has been a ramp-up and working capital building quarter.

Next question is when it comes to acquisition, are you only looking at candidates within renewables?

No. We are -- as you see from our mission statement, our mission is to build sustainable businesses. That's really what we do. So the renewables definition is to narrow for Green Energy Group. Building sustainable businesses is really the mission for the company, and that may happen without -- or within or outside of the renewables area. Having said that, we think the renewables area is really, really exciting. And we see some very good long-term opportunities in that area. So not ruling that out, but it's just that the definition is to narrow for Green Energy Group. Okay. Are there any other questions, Erik?

I don't think we have any other questions. Just a second. Just let me check if we have any. Yes, we have 1 more. Can you tell us more about your consolidation plans?

That would be consolidation plans in SeaBird Exploration then. And so we have pointed to the fact that there'll be an organized company so that these -- it's easier for SeaBird to not only participate but to actively engage and proactively engage in this consolidation. So I don't think we can -- of course, we will announce as soon as we have something to announce. To go in deep into this now is a little bit premature. What I can say is that we are very clear on the fact that we believe that 2 or 3 of the players in this industry should work more closely together. And then I'm talking particular about the OBN market. It is a very fragmented market. It is a market that has been shrinking a little bit. So that is helping. From our point of view, we are not, I would say, too stressed about this fragmented situation because we are in a very good position, operating some of the top vessels in the industry. So we think also with the Fulmar out, we think we will show higher utilization than the industry average. But but adding more equipment, adding more vessels to our fleet, makes a lot of sense, we think, both from utilization standpoint, from a risk standpoint, having more legs to stand on and in terms of technical risk or being less impacted by technical risks. And of course, there is some market benefit to gain from that. So we are hopeful, and we are engaging in discussions. And we -- but we can't do this alone. So we are dependent on other parties, and we will report as soon as there is something more -- as soon as there are more details.

Okay. We don't have any other questions.

Okay. Very good. I guess that concludes the call then. Just on this film that we showed, the full film there that was showed on the 50 Global Leaders on bloomberg.com, can be seen on Green Minerals website. So if you go to the Investors section on greenminerals.no, you can see the full film that was shown there. So with that, I guess we call it a day. Thank you very much, and we will see you again next quarter. Thank you.